U.S. banking industry strikes back at White House study again! Warning that if stablecoin interest rates are opened up, small investors will be the ones hurt.

The American Bankers Association protests the White House report for misleading policies, pointing out that if stablecoins are allowed to pay yields, it will trigger a large-scale outflow of deposits. The association emphasizes that the White House has overlooked the systemic risks that could arise after market growth.

White House research accused of misleading policies, ABA states ban study ignores market size risks

The American Bankers Association (ABA) recently issued a strong protest against the report released by the White House Council of Economic Advisers (CEA). The core of this dispute centers on whether the yield-paying function of stablecoins threatens the traditional banking system, especially the survival of community banks.

On April 8, 2026, the White House published a paper titled “Impact of a Stablecoin Yield Ban on Bank Lending.” The study states that banning payments of yields by stablecoin issuers would only increase total bank loans by about $2.1 billion. Compared to the total U.S. loan volume of $12 trillion, this increase is only 0.02%, with minimal impact.

• Related article: White House study: Banning stablecoin interest almost useless for protecting bank loans and instead deprives consumers of benefits

ABA Chief Economist Sayee Srinivasan and Vice President of Banking and Economic Research Yikai Wang responded with an article. They believe the White House’s research framework has significant flaws. The report examines the impact after implementing a ban but ignores the potential effects of allowing stablecoins to pay yields and scale up. ABA points out that the White House only uses the current stablecoin market size of about $300 billion as a baseline, a perspective that cannot reflect the true risks that could emerge as the market evolves. The banking industry generally fears that once payment-type stablecoins are permitted to offer rewards similar to interest on a large scale, funds will rapidly flow out of federally insured bank accounts.

Community banks face deposit outflow threats, Iowa simulation reveals credit contraction

In ABA’s arguments, the most critical concern is the disruption of the local financial ecosystem. Community banks rely heavily on local deposits to support local lending. If stablecoins develop competitive yield mechanisms, even directly competing with U.S. Treasuries or high-yield savings accounts, these deposits will face severe challenges.

A simulation analysis targeting Iowa reveals specific risks. If the stablecoin market grows to $100 billion to $200 billion, or even reaches $1 trillion to $2 trillion, it could trigger deposit outflows of $5.3 billion to $10.6 billion just within the state. This would further lead to a reduction in loans to local families and businesses by about $4.4 billion to $8.7 billion.

Image source: Secure American Opportunity A simulation analysis for Iowa reveals that if the stablecoin market reaches $1 trillion to $2 trillion, it could cause deposit outflows of $8B to $10.6B in that state alone.

This kind of deposit loss is devastating for community banks that rely on these funds for financing. To maintain lending operations, small banks are forced to seek higher-cost wholesale funding or significantly raise deposit rates to retain customers. These additional funding costs will ultimately be borne by borrowers. Farmers, small businesses, and ordinary households will face higher borrowing thresholds and loan interest rates. ABA recommends policymakers view the stablecoin yield ban as a prudent safeguard. This measure can ensure stablecoins maintain their original purpose as a payment tool and prevent them from evolving into high-risk financial substitutes that circumvent regulation and directly compete with insured deposits.

Deposit restructuring overlooks distribution risks, experts warn that capital flowing to big banks will weaken local economies

The White House report mentions the concept of “deposit reshuffling.” CEA economists believe that when consumers convert cash into stablecoins, issuers will reinvest reserves into U.S. Treasuries, repurchase agreements (Repos), or money market funds. Most of the funds will eventually flow back into the banking system. The White House report further states that since the U.S. banking system currently holds over $1.1 trillion in excess liquidity, this capital transfer has a very limited impact on the system’s overall lending capacity.

In response, ABA counters that this macroeconomic perspective completely ignores the micro-level difficulties faced by individual financial institutions. Even if the total capital remains within the banking system, its distribution will fundamentally change. Stablecoin issuers’ reserves are usually concentrated in a few large financial institutions rather than widely distributed among community banks. This upward concentration of funds will directly weaken local economies’ access to credit. The yield mechanisms of stablecoins are essentially creating a “Narrow Banking” model. While this model appears safe at the payment level, it undermines the core function of banks as credit intermediaries, thereby affecting credit creation in the real economy.

Regulatory loopholes urgently need fixing, the CLARITY Act becomes a focal point in U.S. stablecoin market battles

The current legal environment and regulatory gaps further intensify this battle. The 2025 passed “GENIUS Act” established the first federal-level regulatory framework for payment-type stablecoins and prohibits issuers from directly paying interest to holders. However, the bill does not explicitly ban “reward incentives” provided through third-party platforms or affiliates. For example, Coinbase’s $USDC reward program operates similarly to high-yield deposits. Since early 2026, ABA and other banking industry groups have been urging Congress to close this loophole to prevent funds from rapidly shifting from traditional banks to crypto platforms.

• Related news: Genius Act bans stablecoin issuers from paying interest! Two platforms exploit loopholes: we now issue “rewards”

Currently, the focus of this debate has shifted to the ongoing review of the “CLARITY Act.” Some draft versions propose banning intermediary institutions from passing stablecoin reserve yields to end users. Senator Cynthia Lummis of Wyoming, chair of the Senate Banking Committee’s Digital Assets Subcommittee, has been actively voicing her opinions on social platforms. She emphasizes the need for clearer U.S. regulations and states that the bill’s fate is at a critical juncture. As the 2026 midterm elections approach, if Congress cannot reach a consensus soon, the debate over stablecoin yields will continue to disrupt U.S. credit allocation and financial stability.

• Related news: U.S. lawmakers: This week is critical for the CLARITY crypto bill; failure to pass could delay it until 2030